Tax Reporting of Fees to Personal Representatives and Trustees

With another tax season underway, we have been in the throes of preparing Forms 1099 for a number of our clients. Form 1099-MISC reports payments made in the course of a trade or business for annual amounts of $600 or more in rents, services, and a number of other payments. The payer must furnish the 1099-MISC to the recipient by January 31st and to the IRS by February 28th.

From the estate or trust’s perspective

We are often asked by our fiduciary clients if Forms 1099-MISC must be issued by estates or trusts that pay fees to the Personal Representative (PR) or Trustee. Forms 1099-MISC are not required to report such fees because administration of an estate or trust is not a trade or business activity. Even if the PR or Trustee is a professional trustee (in the business of administering estates and trusts) a Form 1099-MISC still should not be required because it is the activity of the estate or trust (the party making the payment) that is determinative. The same analysis would be used to determine if Forms 1099-MISC must be issued to other service providers such as attorneys and accountants. If the work is performed in connection with administration of the estate or trust, Forms 1099-MISC for those services are not required.

Although outside of this article’s scope, there may be instances where an estate or trust is required to issue Forms 1099. For example, an estate or trust engaged in an active business endeavor, including certain rental activities, would be required to issue applicable Forms 1099-MISC for payments made related to that business activity.

From the PR or Trustee’s perspective

A related issue is the PR or Trustee’s individual tax treatment upon receipt of such fees. A nonprofessional PR or Trustee (such as one serving in a family or friend setting) will simply include the fees in the Trustee’s gross income on Line 21 of Form 1040 as other income, and such fees are not subject to self-employment tax. A professional PR or Trustee, however, will report fees as self-employment income subject to self-employment tax in addition to income tax.

If you have any questions about these filing requirements, please contact Jean McDevitt at 1-800-244-7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachment) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.